Tips for Navigating and Surviving Financial Hardships

Oct 27, 2022

Economic conditions in the United States currently are confusing. Although there are currently some signs of a recession, there is still debate between organizations about whether the recession has officially hit or is still on its way. Supporting the argument of a recession is the change in consumer spending habits and a decrease in discretionary purchasing. In addition, the rising cost of raw materials and transportation, makes it more difficult for businesses to generate positive margins, which also suggests the recession has hit.

Other conditions, such as relatively low national unemployment, contradict the idea. However, experts suggest that the volatile labor market at present could contribute to a prolonged or worse recession overall. Though unemployment is relatively low, the demand for labor driving up wages to the point that businesses and consumers alike cannot afford to pay, may make matters worse.

Key Considerations

Recession or not, there are some key considerations businesses should keep at top of mind when dealing with financial distress.

Cash is Imperative. Without cash, businesses wouldn’t be able to meet their most basic financial requirements, e.g., payroll and operating costs.  Keep a close eye on cash balances and monitor the overall liquidity of the organization on a weekly basis, at minimum.

Reign in Accounts Receivable. The older receivables get, the harder they become to collect. This could also result in decreased cash flow, further contributing to the concerns regarding cash.  Work with your customers to develop payment plans or in some cases, offer a small discount just to collect.  Consider scrutinizing credit for new or habitual late paying customers or request a deposit up front.

Scrutinize and Justify Costs.  As you review monthly financials, pay attention to where costs are tracking across all levels and departments.  Look at comparative financials to identify material discrepancies or significant changes between months or periods.  While some increases in costs may be necessary or warranted, chances are good that conducting this exercise on a regular basis may yield some savings.

Manage Inventory.  The pandemic motivated many business owners to invest in inventory in an attempt to avoid further supply chain problems. However, an excess of unsold stock creates an imbalance when customers aren’t buying. It is important to find a happy medium between the two where you have ready stock on hand when needed, but not so much that it causes a cash flow problem or issues with spoilage or shrink.

Monitor Bank Covenants. Not only do covenants cast doubt as to the organization’s ability to repay the loan, but it can also cost the organization in the form of higher interest rates. In the case of a covenant default, it is important for organizations to outline a plan of recovery. This plan should be written, and include a budget, as well as activities and assignments. The plan should also be as detailed as possible so as to improve implementation and reassure the bank.

Planning Ahead

Regardless of the current state of the economy, there are some steps companies can take in advance to be prepared to weather the storm and make it out the other side. For example, compiling cash flow projections allows the management team to make on the fly decisions in a timely manner. Additionally, implementing price increase programs allows the company to restore profitability while maintaining customers.

It is also important to outline an accounts receivables program that is clear and effective, while still considerate of the customer. Rationalize inventory to avoid stockouts, but also maintain product turn, scour the expense accounts in the financial statements, and formulate a loan restructuring plan to share with your lender.

Finally, during times of trouble, it is still important to continue implementing the business plan. Though the team will likely be spread thin and concerns for cost will be heightened, losing momentum on the plan may come with more costly consequences than if it is maintained.

For more information regarding how to prepare and remain steady during times of financial hardship, reach out to Tim Reynolds via email at or 828.322.2070